UK services sector expands at a slower than expected pace in February

on Mar 5, 2020
Updated: Mar 11, 2020
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  • UK services sector expands at a slower than expected pace in February.
  • UK final services PMI drops to 53.2 in February versus 53.9 in January.
  • UK’s economy is likely to grow at a 0.2% pace in the current quarter.
  • Economists expect the Coronavirus emergency to further weigh on the UK's economy.

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IHS Markit announced its report on the UK’s final services purchasing managers’ index (PMI) on Wednesday. The economic data suggested the services PMI to have dropped to 53.2 in February following January’s 53.9 that marked its best reading in 16 months. According to the experts, January’s optimism was primarily fueled by the Conservatives’ victory in the UK’s general election on December 12th that fast-tracked its departure from the European Union. In February, however, the Coronavirus has weighed on the reading.

Economist Chris Williamson’s Comments On Wednesday’s Data

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Economist Chris Williamson commented on IHS Markit’s data on Wednesday and said that owing to the Coronavirus driven disruptions to global business operations, it is highly uncertain if the UK’s economy would be able to sustain the gain in its services PMI in the upcoming months. He also commented:

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“The survey data leave policymakers juggling between current signs of both improved economic growth and rising prices while risks to the outlook have clearly intensified”.

IHS Markit’s Wednesday’s data also hinted that the UK’s economy is likely to grow at a 0.2% pace in the current quarter that translates to improvement as compared to the end of last year. On the other hand, Mark Carney, the current Governor of the Bank of England (BoE), reiterated on Tuesday that the potential impact of the health emergency in China on the UK’s economic activity is likely to be severe and the policymakers are committed to evaluating all options to counter the slowdown.

The aforementioned survey collected data from 12th February to 26th February. Since the Coronavirus impact only started to appear on the global economy towards the end of last month, the full spectrum of its effect on the UK’s economy is still not reflected precisely in Wednesday’s data.

Response In The Forex Market

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Despite the boost to the UK’s economy that stemmed from PM Johnson’s victory in December’s general election, the manufacturing sector slumped in February as the virus crisis weighed on factories’ supply chains, as per Monday’s data.

The services sector, on the other hand, reported weakest job creation in 3 months as firms cited global economic uncertainty to have made them more cautious of expanding hiring. But the business optimism in the UK’s services sector still climbed to a record high in the past 5 years.

The GBP/USD currency pair climbed from 1.2770 on Wednesday to a daily high of 1.2870. It extended its upward rally on Thursday with the pair currently exchanging hands at 1.2905 in the forex market.

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